Ad Agency Also Settles Over its Role in Creating Infomercials

For Release

May 12, 1998

Bogdana Corporation, a Beverly Hills, California company, and its officers, have agreed to settle Federal Trade Commission charges that they made false and unsubstantiated health claims in their advertisements for two dietary supplement products -- Cholestaway and Flora Source. The FTC alleged that Bogdana promoted both products as cures or preventatives for a wide variety of serious diseases and health conditions. In a separate agreement, Western Direct Marketing Group, Inc., the advertising agency that created and produced the television infomercials for Cholestaway, has settled FTC charges that it engaged in deceptive practices in connection with its role in developing the ads for Bogdana. The proposed settlements of these charges would prohibit Bogdana and Western Direct Marketing Group from making efficacy, performance, or safety claims for any food, drug or dietary supplement, unless they have competent and reliable scientific evidence to back the claims.

"The advertising in this case dished out a plateful of empty promises," said Jodie Bernstein, Director of the FTC’s Bureau of Consumer Protection. Some of the ads suggested that you could eat unlimited amounts of fried chicken and pizza, and still lower your cholesterol and lose weight. They even promised miracle cures for serious health problems.

Cholestaway -- a chewable tablet or wafer made of calcium carbonate and other ingredients -- was advertised to lower serum cholesterol and blood pressure, and cause weight loss, among other health benefits. Flora Source -- a powdered combination of bacteria in a base of rice starch -- was advertised for treating or preventing AIDS, chronic fatigue syndrome, and other serious illnesses and health problems, by replacing "natural" intestinal flora and boosting the body’s immune system. Ads for both products included nationwide TV and radio infomercials, Bogdana catalogs, and Internet ads.

In two separate complaints, the FTC names Bogdana Corporation and its officers, Joseph L. Gruber and Bogda Gruber; and Western Direct Marketing Group, Inc. (WDMG), based in Los Angeles, and its parent corporation, Western International Media Corporation.

In 1995, according to the FTC, the Council of Better Business Bureau's National Advertising Division (NAD) -- the advertising industry's self-regulatory arm -- investigated the Cholestaway claims and determined that several were unsubstantiated. The NAD recommended that the ads be modified or discontinued. The following year NAD submitted the matter to the FTC, after finding that the company's revised ads did not "adequately address a number of NAD's concerns regarding the truthfulness and accuracy of the advertising."

"I am especially concerned that the advertisers continued to make deceptive claims even after the advertising was challenged by the Council of Better Business Bureau’s National Advertising Division," Bernstein said. "The Commission staff supports the self-regulatory process and has worked with the dietary supplement industry to educate members about the truth-in-advertising requirements. But, as this case illustrates, when self-regulation fails, we are prepared to take action.

Bogdana:

According to the FTC, Bogdana claimed that Cholestaway would, among other things:

In the complaint detailing the charges, the FTC alleged that the respondents did not have a reasonable basis for any of these representations at the time they were made. In addition, the complaint alleged that Bogdana misrepresented that the testimonials in its ads reflect the typical experiences of consumers who used Cholestaway; and that scientific studies proved that Cholestaway lowers serum cholesterol levels and significantly reduces elevated blood pressure.

The complaint further alleged that the respondents misrepresented the radio infomercials for Cholestaway as independent radio programs rather than paid commercial messages.

The complaint alleges that the advertisements for Flora Source claimed that this product would, among other things:

reduce the risk of developing, and/or effectively treat, illnesses such as chronic fatigue syndrome (Epstein-Barr syndrome) and other immunosuppression diseases, including AIDS;

improve the body's absorption of nutrients, including B vitamins;

prevent weight gain; and

prevent or treat anorexia.

The FTC alleged that the respondents did not have a reasonable basis for any of these representations at the time they were made.

Western Direct Marketing Group:

In a separate complaint against WDMG, the FTC alleged that the company created and produced the television infomercials for Cholestaway and knew or should have known that the claims described above were deceptive.

In the proposed consent agreements to settle these charges, announced today for public comment, the respondents would be prohibited from making the challenged representations about Cholestaway or Flora Source, unless they possess competent and reliable scientific evidence that substantiates such representations. The settlements would further prohibit the respondents from making claims about the efficacy, performance, safety or benefits of any food, dietary supplement or drug unless they have competent and reliable scientific evidence that substantiates the claims. The consent agreements would allow the (Bogdana/Western Direct--05/12/98)

respondents to use certain claims for foods that are approved for labels by the Food and Drug Administration through its regulations under the Nutrition Labeling and Education Act of 1990, and certain claims for drugs that are approved by the FDA.

In addition, the consent agreements would prohibit the respondents from representing that any advertisement is something other than a paid ad, and would require periodic disclosures during radio infomercials that they are advertisements. The agreements also would prohibit claims that an endorsement is typical of the experiences of consumers who use the product, unless that claim is substantiated.

Finally, the proposed settlements contain various reporting provisions that would assist the FTC in monitoring the respondents' compliance.

The Commission vote to accept the two complaints and proposed consent agreements for public comment was 5-0.

An analysis of the proposed consent agreements will be published in the Federal Register shortly and will be subject to public comment for 60 days, after which the Commission will decide whether to make them final. Comments should be addressed to the FTC, Office of the Secretary, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580.

NOTE: Consent agreements are for settlement purposes only and do not constitute an admission of a law violation. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of $11,000.

Copies of the complaints, the proposed consent agreements, and analyses of the agreements to assist the public in commenting are available from the FTC’s web site at http://www.ftc.gov and also from the FTC’s Consumer Response Center, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-FTC-HELP (202-382-4357); TDD for the hearing impaired 1-866-653-4261. Consent agreements subject to public comment also are available by calling 202-326-3627. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.